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US Credit Card Debt

A close-up image of numerous credit cards piled together, showcasing various colors, designs, and embedded chip technology.

In May, the New York Fed released its 2024:Q1 Household Debt and Credit Report, unveiling potential significant trends in household debt and credit.

The report showed household debt continues to make new record highs. Q1 added $184 billion to consumer balances, totaling $17.69 trillion. However, this news should be familiar to everyone who studies capital markets because rising debt levels are normal and should be expected during economic expansions. However, higher delinquency rates—particularly in credit cards—are raising eyebrows. Although seldom discussed in the news, credit card balances fell -$14 billion to $1.12 trillion, now just 6% of the total. Nevertheless, the percentage of seriously delinquent accounts (90+ days past due) rose a whole percentage point to 10.7%, the highest since 2012, up from Q3 2022’s low of 7.6%.

While some individuals and families are facing hard financial times, the aggregate of households in the US are doing well. Yes, seriously delinquent debt related to credit cards is increasing, but when you look at the aggregate of all serious delinquency rates, it only ticked up to 1.83% from 2023 Q4’s 1.74%. That is not an alarming move, and when analyzed, this slight uptick is sufficiently below the 3% average of serious delinquency rates that prevailed pre-pandemic when the economy—and markets kept rising. And well below the Great Financial Crisis delinquency peak rate in 2010 of 8.71%.

You can also analyze this more broadly by taking the Household Debt Service Ratio (DSR)—lower than at any time over the last 44 years outside of two years during Covid, when the ratio fell drastically due to government payouts. This trend helps unseat the debate regarding over-indebted consumers. Look for yourself with DSR alongside Mortgage and Consumer Debt. This FRED graph shows the percentage of disposable (i.e., after-tax) income households dedicated to servicing specific types of debt. The graph has three lines. The red line shows mortgage debt and the green line shows consumer debt (credit card, auto, and personal loans). The blue line is the sum of the red and green lines. The financial burdens from mortgages and consumer debt vary quite a bit. Let’s consider two main reasons: The larger the debt, the more significant the burden, as households need to pay more interest on a larger principal. And changes in interest rates influence how much is paid to service loans. The blue line (mortgage debt plus consumer debt) increased from the early 1990s until the 2008-2009 recession, when it decreased. This decrease resulted from the combination of the two effects noted above, the amount of debt and interest rates. With a few exceptions, current total debt obligations have been at their lowest since collecting these data started.

Furthermore, newer data from CreditGauge (Interactive chart titled “Delinquency Trend”) shows that the percentage of overall outstanding consumer debt balances—encompassing auto, card, home, and personal loans—that was 30 to 59 days past due fell to 0.86% in April, down from the recent peak of 1.04% in February. This data is an excellent start to helping serious delinquent debt numbers (90+ days) move down in Q2. (Sidenote: February 2024’s level is below the February 2020 mark of 1.07%)

So, when you look at the data, remember stocks tend to look at the general trend—no matter how much financial news coverage heart-wrenching stories might get. Those stories often are not meaningful economic data. Instead, it’s best to analyze the stock market’s most crucial driver—corporate earnings (positive article).

Looking forward, expect households to have solid overall incomes and manageable debt. The continuance of fearful stories should keep stock market expectations low. Stocks move on the gap between those expectations and reality over the foreseeable future, and the fear of a false factor only widens that gap.

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